Strong Demand Is Expected
To Increase Sony's Earnings

TOKYO --
Sony Corp.
will post strong results for the fiscal first half ended Sept. 30 because of foreign-exchange benefits and favorable demand for many of its products, securities analysts predict.

"I expect a strong performance as a result of the yen advantage, which is still accruing," said Alan Bell, a senior analyst at Schroders Japan Ltd., referring to the yen's weakness against the dollar. "The first quarter was good, the second quarter should also be good," he said.

Analysts' forecasts for first-half group sales range from 2.295 trillion yen to 2.450 trillion yen ($20.45 billion to $21.83 billion); for group pretax profit from 94.1 billion yen to 113.3 billion yen; and for group net income from 39 billion yen to 50.2 billion yen. In the year-earlier first half, Sony posted group sales of 2.047 trillion yen, pretax profit of 47.94 billion yen and net income of 16.09 billion yen, based on U.S. accounting standards.

Sony will release its first-half results Nov. 7. It doesn't make half-year forecasts of its own. For the full fiscal year, however, Sony forecast that consolidated sales will rise 9% from the previous year to five trillion yen, pretax profit will increase 41% to 195 billion yen, and net income will grow 75% to 95 billion yen.

Role of Weaker Yen

Helping Sony in the first half, and likely in the second half, analysts said, is the weaker yen, which boosts earnings on exports. "The strong dollar and the weaker yen will help the company massively," said Koichiro Chiwata, an analyst at Salomon Brothers Asia Ltd.

In the first quarter of the current fiscal year, an appreciation of the dollar to an average 107 yen from 83 yen in the year-earlier first quarter boosted Sony's sales by 170 billion yen and operating profit by 47 billion yen, according to Masahiro Ono, a senior analyst at Credit Lyonnais Securities (Japan). He says an average yen/dollar exchange rate of around 108 in the second quarter of the current fiscal year, compared with 93 in last year's second quarter, will provide a further boost to Sony's sales and profits.

Moreover, if exchange rates remain at present levels in the second half, the company could derive even further benefit, says Mr. Ono, noting that the average exchange rate for the second half of the last fiscal year was 93 yen to the dollar. The dollar was trading in Tokyo Friday at around 112.19 yen.

Strong Product Demand

Also benefiting Sony, analysts said, is strong demand for many of its products, especially in Japan. In the first quarter of the current fiscal year, consolidated sales in its electronics business group rose 29% from a year earlier, video-equipment sales were up 18%, audio-equipment sales expanded 19%, television sales rose 36%, and other product sales, including things like Sony's PlayStation home video-game system and lithium batteries, increased 42%. Strong electronics-division sales are expected to continue.

Among the products whose sales have been especially strong, analysts said, are wide-screen televisions, 8mm camcorders, professional video equipment, digital mobile telephones, lithium batteries and the 32-bit game system PlayStation, whose cumulative world-wide unit sales had topped five million as of May.

Also promising for Sony is its MiniDisc player. David Benda, a senior analyst at BZW Securities (Japan) Ltd., sees its domestic sales reaching seven million in the fiscal year through March 1998 from around 3.5 million to four million this fiscal year and 1.5 million in the previous fiscal year.

On the other hand, there has been weakness in static random-access memory chips and CD-ROM drives, analysts said.

Lackluster Film Business

Analysts also pointed to the "notably poor performance" of Sony's film business. According to Mr. Benda, Sony Pictures Entertainment made only $13 million per film on average in the first eight months of the year, compared with leader Twentieth Century Fox at $60 million per film. In the first quarter, Sony's pictures group sales and operating revenues rose 84% to 106.53 billion yen, but much of that growth came from revenue other than U.S. movie box-office receipts, especially from a licensing deal with German broadcaster Beta Taurus Television for a film entertainment library.

Despite a few weak product areas, analysts said the overall picture for Sony looks good. Mr. Benda forecasts that the company's group sales for the full fiscal year through March 1997 will rise 11% to 5.1 trillion yen, while its operating profit will increase 27% to 300 billion yen, its pretax profit will grow 56% to 216 billion yen, and its net income will rise 95% to 106 billion yen. In the following fiscal year through March 1998, he forecasts a further 11% rise in group sales, a 25% increase in operating profit, a 46% gain in pretax profit, and a 42% rise in net profit.